Remittance and community development
Friday, 12 October 2007
Hasan Mahmud
THE dominant economic discourse posits that international migration undermines the prospect for economic growth at both the national and community levels. Such a view is attained through micro-level case studies of remittances earning and spending patterns in various labour sending communities in developing countries.
There is multiplicity of small-scale regional surveys and field studies carried out in specific villages indicates that the bulk of remittances are spent on consumption. Tens of researches conducted across countries confirm that money earned through migration is attracted overwhelmingly to housing, purchase of other real properties, and family maintenance, leaving little money available for productive investments. Some researchers observe that most remittances money is spent on increased family consumption, education, health and better housing. These findings are generally observed in all the labour sending countries and regions including Mexico, Egypt, Middle-East, Latin America, South Asia and South-East Asia.
Spending on consumer goods, real property, social services and conspicuous consumption does not generate income. Instead this increases inflation in the market. Besides, coupled with the selective migration and consequently the unequal distribution of remittances in favour of the well-off families exacerbate income inequality at the community level. As such, the community as a whole is adversely affected by migration remittances. Hence, the belief that international migration stifles development and promotes dependency.
However, the pessimistic view of international migration is counteracted by a more calculated examination of the patterns of remittances spending at the local level by researchers more recently. Some researchers have observed differential patterns of remittances use which have differential impact on community development through productive investment. They find three specific levels of community where remittances help investment and business formation: urban communities; rural communities with access to urban markets; and rural communities with favourable agricultural conditions.
One research in Philippines documents that remittances provide both a source of capital for cash-crop production and a means of acquiring land and ending exploitation by the wealthier landlords. Studies in Sudan, Ghana, Lesotho, Kenya and Mozambique also confirm such productive investment from remittances. However, these studies have identified two major problems in effective promotion of development through remittances: first, poor public services and infrastructure seriously limit the potential investment of remittances in productive activities, and secondly, a lack of well-functioning local market, especially credit market. Remittances are likely to have more positive impact where there is a credit market that acts as the intermediary between the migrant families as procurers of savings and the local entrepreneurs who directly engage in investment and production.
The New Economics of Labour Migration (NELM) conceives the household as the basic unit of analysis while studying the patterns of usage and developmental impact of remittances. It broadens our understanding of the impact of migration on the sending communities. Earlier, the neo-liberal economics assumes that international migration causes labour deficit in the sending families which negatively affects agricultural production. However, NELM argues that lose of productive labour at the beginning is compensated immediately after the worker starts sending remittances back to home. After paying migration costs and covering the lost marginal product of the departed migrant, the remittances directly contribute to the household income.
Researchers of this theoretical school argue that the output in migrant-sending household falls as labour is withdrawn from farm production. However, in the long run productivity increases for two reasons: first, migrant remittances are invested in production at home, loosening constraints of productivity-enhancing ventures and yielding higher output; secondly, migration diversifies the sources of income and encourages risk-averse households to embark on unproven, but potentially productive investments.
There are numbers of studies that suggest that the relationship between migration and development is not constant over time or across settings. Over time, there is a pattern first of negative and then of positive effects of migration on non-remittance income in sending households. Across settings, the extent of the positive effect of remittances depends on the profitability of investment in new production activities, which in turn depend on other local conditions. It is precisely the responsibility of the government to ensure the "other" local conditions that facilitate profitability for new productive investments. For example, well-established infrastructure (say electricity, roads, supply of raw materials, etc) is necessary for any productive investment, the establishment and maintenance of which is far beyond the capacity of individual investors. Similarly, education and health are among other public services necessary for development that fall within the purview of the government's initiative.
Going beyond the small-scale micro-level case studies of individual labour-sending countries, a group of researchers concludes some crucial points regarding the developmental potential of labour migration:
First, the remittances-and-development lifecycle shows that the marginal productivity of migrant labour is positive and other indirect influences are more important. Remittances help households evade financial and risk constraints on local production and thereby promoting domestic economic growth and community development.
Secondly, the multiplier impact of remittances on income and employment are quite high, and many of these indirect benefits do trickle down to the neighbouring non-migrant households who provide with the newly emerged goods and services due to large-scale emigration from a particular community. For example, the emergence of real estate sector in a previously rural community that serves mainly the expatriate community. This claim points to the booming real estate industry in Bangladesh that employs as many as 50,000 workers and other employs as REHAB reports.
Thirdly, while recognising the developmental potentials of remittances, we must remember that labour migration is neither a panacea nor a substitute for a prudent development policy. This can, at best, be a useful complementary strategy in the labour-abundant communities where the opportunity cost of labour exporting is relatively low and the potential gain from labour migration is high. In case of shortage for the required fund for development, the developing countries may promote labour export by investing in developing skills for which there are high demands in countries of destination (for example nursing, catering, etc), and also offering incentives for the migrants to repatriate their earnings as remittances.
Finally, and most significantly, the government must take necessary initiatives to create an environment conducive to investment in productive sectors in the home communities so that remittances money can be effectively channelled to income generating ventures. The conventional patterns of remittances use by the migrant families in consumer goods, purchasing land and house, improving house, and other speculative investments for which they are criticised so far are natural response to the restrictive, inflationary and uncertain environment induced by the state policy that discourages the small-scale production sectors where the migrant families would potentially invest.
Therefore, community development through the prudential use of remittances money is a comprehensive programme that requires involvement of both the migrant families and the government. Only such a concerted effort can tap the full potentials of remittances for development which has been emerging as the driving force in Bangladesh.
.............................................................
The writer is a Monbusho Scholar in the Global Studies Programme, Sophia University, Japan and may be reached at '[email protected]'
— Concluded
THE dominant economic discourse posits that international migration undermines the prospect for economic growth at both the national and community levels. Such a view is attained through micro-level case studies of remittances earning and spending patterns in various labour sending communities in developing countries.
There is multiplicity of small-scale regional surveys and field studies carried out in specific villages indicates that the bulk of remittances are spent on consumption. Tens of researches conducted across countries confirm that money earned through migration is attracted overwhelmingly to housing, purchase of other real properties, and family maintenance, leaving little money available for productive investments. Some researchers observe that most remittances money is spent on increased family consumption, education, health and better housing. These findings are generally observed in all the labour sending countries and regions including Mexico, Egypt, Middle-East, Latin America, South Asia and South-East Asia.
Spending on consumer goods, real property, social services and conspicuous consumption does not generate income. Instead this increases inflation in the market. Besides, coupled with the selective migration and consequently the unequal distribution of remittances in favour of the well-off families exacerbate income inequality at the community level. As such, the community as a whole is adversely affected by migration remittances. Hence, the belief that international migration stifles development and promotes dependency.
However, the pessimistic view of international migration is counteracted by a more calculated examination of the patterns of remittances spending at the local level by researchers more recently. Some researchers have observed differential patterns of remittances use which have differential impact on community development through productive investment. They find three specific levels of community where remittances help investment and business formation: urban communities; rural communities with access to urban markets; and rural communities with favourable agricultural conditions.
One research in Philippines documents that remittances provide both a source of capital for cash-crop production and a means of acquiring land and ending exploitation by the wealthier landlords. Studies in Sudan, Ghana, Lesotho, Kenya and Mozambique also confirm such productive investment from remittances. However, these studies have identified two major problems in effective promotion of development through remittances: first, poor public services and infrastructure seriously limit the potential investment of remittances in productive activities, and secondly, a lack of well-functioning local market, especially credit market. Remittances are likely to have more positive impact where there is a credit market that acts as the intermediary between the migrant families as procurers of savings and the local entrepreneurs who directly engage in investment and production.
The New Economics of Labour Migration (NELM) conceives the household as the basic unit of analysis while studying the patterns of usage and developmental impact of remittances. It broadens our understanding of the impact of migration on the sending communities. Earlier, the neo-liberal economics assumes that international migration causes labour deficit in the sending families which negatively affects agricultural production. However, NELM argues that lose of productive labour at the beginning is compensated immediately after the worker starts sending remittances back to home. After paying migration costs and covering the lost marginal product of the departed migrant, the remittances directly contribute to the household income.
Researchers of this theoretical school argue that the output in migrant-sending household falls as labour is withdrawn from farm production. However, in the long run productivity increases for two reasons: first, migrant remittances are invested in production at home, loosening constraints of productivity-enhancing ventures and yielding higher output; secondly, migration diversifies the sources of income and encourages risk-averse households to embark on unproven, but potentially productive investments.
There are numbers of studies that suggest that the relationship between migration and development is not constant over time or across settings. Over time, there is a pattern first of negative and then of positive effects of migration on non-remittance income in sending households. Across settings, the extent of the positive effect of remittances depends on the profitability of investment in new production activities, which in turn depend on other local conditions. It is precisely the responsibility of the government to ensure the "other" local conditions that facilitate profitability for new productive investments. For example, well-established infrastructure (say electricity, roads, supply of raw materials, etc) is necessary for any productive investment, the establishment and maintenance of which is far beyond the capacity of individual investors. Similarly, education and health are among other public services necessary for development that fall within the purview of the government's initiative.
Going beyond the small-scale micro-level case studies of individual labour-sending countries, a group of researchers concludes some crucial points regarding the developmental potential of labour migration:
First, the remittances-and-development lifecycle shows that the marginal productivity of migrant labour is positive and other indirect influences are more important. Remittances help households evade financial and risk constraints on local production and thereby promoting domestic economic growth and community development.
Secondly, the multiplier impact of remittances on income and employment are quite high, and many of these indirect benefits do trickle down to the neighbouring non-migrant households who provide with the newly emerged goods and services due to large-scale emigration from a particular community. For example, the emergence of real estate sector in a previously rural community that serves mainly the expatriate community. This claim points to the booming real estate industry in Bangladesh that employs as many as 50,000 workers and other employs as REHAB reports.
Thirdly, while recognising the developmental potentials of remittances, we must remember that labour migration is neither a panacea nor a substitute for a prudent development policy. This can, at best, be a useful complementary strategy in the labour-abundant communities where the opportunity cost of labour exporting is relatively low and the potential gain from labour migration is high. In case of shortage for the required fund for development, the developing countries may promote labour export by investing in developing skills for which there are high demands in countries of destination (for example nursing, catering, etc), and also offering incentives for the migrants to repatriate their earnings as remittances.
Finally, and most significantly, the government must take necessary initiatives to create an environment conducive to investment in productive sectors in the home communities so that remittances money can be effectively channelled to income generating ventures. The conventional patterns of remittances use by the migrant families in consumer goods, purchasing land and house, improving house, and other speculative investments for which they are criticised so far are natural response to the restrictive, inflationary and uncertain environment induced by the state policy that discourages the small-scale production sectors where the migrant families would potentially invest.
Therefore, community development through the prudential use of remittances money is a comprehensive programme that requires involvement of both the migrant families and the government. Only such a concerted effort can tap the full potentials of remittances for development which has been emerging as the driving force in Bangladesh.
.............................................................
The writer is a Monbusho Scholar in the Global Studies Programme, Sophia University, Japan and may be reached at '[email protected]'
— Concluded